The NWC releases today an extensive commentary that was written by myself and Steve Kohn (with a huge assist from Felipe Bohnet-Gomez) regarding the Treasury Department’s IRS whistleblower reward regs – specifically on the issue of the Treasury’s narrow interpretation of “collected proceeds.”
“Collected proceeds” — two little words — the definition of which could make a big difference in the success of the IRS whistleblower program going after tax cheats (especially those with illegal offshore accounts). The NWC commentary provides chapter and verse to the finding that the Treasury and IRS are ignoring the plain language of the whistleblower award statute (Section 7623 of title 26) as well as the history, structure and context of the legislation in seeking thorough regulations to dramatically cut back when a tax whistleblower can get an award.
What is the issue? – in short, whether an IRS whistleblower can get an reward for information he/she provides that leads to a criminal penalty (example, for having a foreign bank account – Foreign Bank and Financial Account (FBAR) reporting). The Treasury position leads to an absurd result – encouraging whistleblowers to come forward with less information (so only a civil action can be pursued) – and effectively penalizing a whistleblower who comes in with such good information that it leads to a criminal action against a tax cheat. The Treasury position will especially discourage whistleblowers to come forward on information about offshore illegal banking – since these cases can often lead to a penalty outside of Title 26. This short-sighted proposal by Treasury is especially discouraging given the number of whistleblowers I’ve worked with first-hand who have put themselves in harm’s way (wearing wiretaps, subject to physical threats) to help the government go after big-time tax cheats. The Treasury and IRS need to be finding more ways to support and encourage courageous whistleblowers to come forward – not twisting themselves to find ways to say no.
The NWC commentary should also serve as a useful roadmap for whistleblowers and their attorneys seeking to challenge the IRS position on this issue.
Links: The Legality Of The IRS’ Proposed Whistleblower Rule: Flunking The Loving Test